Germany gears up for 2000

The German legal market is in a state of flux. Firms are gearing up for further domestic mergers, while foreign lawyers and accountants are aggressively building up their German offices.

The burning question is how to keep market share in a sluggish economy. "Every major German firm is talking about how they should meet the next 10 years," notes one foreign lawyer in Frankfurt.

Ten years ago the German legal profession harked back to the days of the Kaiser - regionally fragmented, bound by archaic regulations, academic rather than business-minded and insular rather than international.

In a decade, small, poorly-managed practices have given way to strong national partnerships. The turning point was at the end of the 1980s, when the bar scrapped rules preventing associations between lawyers from different localities.

Ulrich Wolff, resident partner at the London office of Oppenhoff & Radler, says the change was prompted by pressure from international clients. Merger frenzy ensued, producing most of the German big names, such as Bruckhaus Westrick Stegemann and Punder Volhard Weber & Axster.

Merged firms extol the virtues of size. The 1990 merger of the three firms that comprise Bruckhaus Westrick Stegemann was driven by the desire to be a top domestic and European player. Thomas Tschentscher, a partner, says: "We needed to be a certain size to compete with foreign firms."

Over the past decade the German market has been transformed by deregulation, privatisation and liberalisation. This has produced hot new practice areas, such as telecommunications, and a rise in commercial transactions.

Large corporate transactions offer rich pickings. Hengeler Mueller Weitzel Wirtz and Punder Volhard Weber & Axster were main counsel in the huge Deutsche Telekom transaction.

But some firms eschew the merger logic. With around 50 lawyers, Bonn-based Redeker Schon Dahs & Sellner is keen to expand and is opening a Berlin office this year - but, says London resident partner Hans Piehl, growth will be organic.

This is partly because some mergers have not been happy, underlining the cultural tensions that can emerge when integrating two or more practices, says Piehl. But the main reason is the belief that the firm can hold its own. "If you have the quality and the specialisations, there is no need to merge," he argues.

Is this enough to thrive in a competitive market? The benefits of size have not been lost on other smaller players. Take Peltzer & Reisenkampf, a small but well-regarded corporate practice in Frankfurt. For many years, it opposed merger, but last December it joined forces with Hasche & Eschenlohr and Fischotter Micheli & Partners.

Wolff believes further consolidation is likely. Tschentscher predicts more mergers, driven by national firms acquiring smaller specialist practices.

An advantage of size is that it gives firms the resources to expand. "It is now easier to follow domestic clients into foreign markets," says Tschentscher.

Central and eastern Europe has become a German lawyers' playground. Norr Stiefenhofer & Lutz, Volkswagen's main counsel, has offices in Prague, Budapest and Warsaw, while Bruckhaus Westrick has an office in Moscow. Asia is another land of opportunity - Beiten Burchkardt Mittl & Wegener is opening in China and Bruckhaus Westrick has opened in Hong Kong.

German firms have taken various routes to form links with foreign firms. Oppenhoff & Radler was a force in the creation of the Alliance of European Lawyers, while other firms have formed their own networks, such as the Punder Group.

Firms that were less well-known internationally snuggled up to UK or US firms. Sigle Loose Schmidt-Diemitz & Partner linked with McKenna & Co.

Afraid of losing lucrative US or UK referral work, others sought like-minded Continental firms. Wessing Berenberg-Gossler Zimmermann Lange signed an association agreement with French firm Simeon & Associes and Belgian firm Liedekerke Wolters Waelbroek & Kirkpatrick.

But most major firms have resisted associations with foreign firms in favour of keeping a variety of non-German links. That could change if there was a merger between a top foreign firm and a top German practice.

Deringer Tessin Herrmann & Sedemund has been in talks with UK firms, including Freshfields, and merger has been on the agenda.